Terms and definitions
In reports of international organizations, as well as in scientific literature, along with the concept of offshore, there are used such terms as «offshore area», «offshore jurisdictions», «offshore business», «offshore financial center», «tax haven» and others. At the same time, international organizations such as the IMF, OECD and UNCTAD, developed terminology to fit their own needs. Thus, the OECD examines offshore financial centers (OFCs) through the prism of tax evasion. The IMF, along with elaborating a working definition of OFCs, explores their impact on the international financial system. The UNCTAD studies mechanisms of foreign direct investment (FDI) with the use of OFCs.
Since 1998, the OECD has become an international legislator in the field of anti-offshore fight. Due to that, the organization is credited with developing special terminology in this area. The OECD Report on harmful tax competition defines key factors for identifying tax havens:
a) No or only nominal taxes;
b) Lack of effective exchange of information;
c) Lack of transparency;
d) No substantial activities41.
The IMF gives a multiple definition of an offshore financial center. «OFC is a center where the bulk of financial sector activity is offshore on both sides of the balance sheet, (that is the counter-parties of the majority of financial institutions liabilities and assets are non-residents), where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents». Thus, OFCs are usually referred to as:
– Jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents;
– Financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies;
– More popularly, centers which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity42.
The Working Group on Offshore Centres under the Financial Stability Forum presumes that «Offshore financial centers (OFCs) are not easily defined, but they can be characterized as jurisdictions that attract a high level of non-resident activity. Traditionally, the term implies some or all of the following (but not all OFCs operate this way):